Within less than a year, tragically for crores of Indian farmers, workers, small traders and small manufacturers, evidence is piling up to prove that Modi & Co caused irreparable damage to Indian economy.

Modi will be remembered as 21st century Mohammed bin Thuglak (sultan of Delhi in the 14th century). Modi team’ s head strong belief about their ‘Vedic’ knowledge, the arrogant manner in which they went about implementing Demonetization, the way they browbeat all counter views, the flippant manner they refused to take any course corrections – all are hall marks of idiotic, fascist, comedians. Their comedy translates to economic displacement and misery for the working masses.

We give below an analysis by Sunil K Sinha & Devendra K Pant of India Ratings and Research published in Economic Times. Organizations like India Ratings and Research as well as pink papers like Economic Times are unashamed champions of capitalism and were instrumental in propelling and maintaining Modi in power. Now, they themselves are jumping like having taken an excess dose of laxatives.

The National Council of Applied Economic Research’s (NCAER) Business Confidence Index (BCI), which was at 142.5 in July 2014, declined to 121.6 in April 2016. It began to rise thereafter, and rose to 133.3 in October 2016, but collapsed to 112.0 in January 2017 after demonetisation. In June 2017, just before the implementation of the goods and services tax (GST), it stood at 136.0. The large swing in business confidence indicates that India Inc is uncertain about the future prospect of the economy.

As such, when the economy, after two consecutive monsoon failures, was hoping to benefit from the good monsoon of 2016, government announced demonetisation in November 2016 and followed it up by introducing GST in July 2017. The combined effect of demonetisation and GST is now proving to be far more disruptive for the economy than was expected earlier.

Small is Big Business

While GST’s introduction can’t be faulted on account of its eventual benefit to the economy, the same can’t be said about the impact of demonetisation. Sucking out high-denomination currency and failing to remonetise the economy quickly has, in many cases, proved fatal for the unorganised sector and micro, small and medium enterprises (MSME), as their business transactions were heavily cash-dependent.

MSMEs contributes about 38% to the GDP and account for about 42% of India’s exports. As most of these enterprises have still not been able to recover fully, their pain is finding a reflection in overall economic growth.

The rollout of GST was fairly smooth, and the first two-month revenue collections were also encouraging. However, some stress points have emerged. First, the destocking by manufactures, and now the loss of liquidity for exporters due to delayed GST refund are having an adverse impact on business activity.

On the whole, the current economic landscape is not very encouraging. Index of industrial production (IIP) grew at a dismal 1.2% in July 2017. Bank credit is showing no signs of pickup. The consumer price index (CPI)-based inflation at 3.6% in August 2017 is a five-month high. Current account deficit (CAD) at 2.4% of GDP in Q1 of 2017-18 is a four-year high. Also, with inflation inching up, despite the clamour for further monetary easing, RBI will have less elbow room to reduce policy rate further.

Sucking out high-denomination currency and failing to remonetise the economy quickly has, in many cases, proved fatal for the unorganised sector and micro, small and medium enterprises (MSME)

Moreover, further reduction in policy rate is unlikely to make much of a difference, particularly on the investment front, given the large idle capacities in several manufacturing sectors and the mood of India Inc suggesting they are unsure about what is in store for them.

All this is not to paint a bleak picture. Some of the initiatives and reform measures taken by GoI — such as the Insolvency and Bankruptcy Code, the corporate debt restructuring mechanism, recapitalisation of banks and GST — have the potential to improve the fundamentals of the Indian economy. But their impact will be visible only in the medium-to-long term. But can we ignore the shortterm fallout of these measures on the economy for the medium- to long term benefit?

As there is growing realisation within the government that the economy is in serious trouble right now, GoI is planning a stimulus package essentially targeted towards reducing the woes of small and medium enterprises and exporters. Does GoI have the fiscal space? Fiscal arithmetic of the Budget indicates otherwise.

Get Well Soon, Economy

Based on the present revenue and expenditure trend of the government, the fiscal deficit is expected to rise to 3.46% of GDP this fiscal year, 26 bp higher than budgeted. This means that the government will have to invoke the ‘escape clause’ mentioned in the report submitted by the N K Singh Committee to review India’s fiscal discipline rules.

Poor GDP growth in two successive quarters — Q4 2016-17 and Q12017-18 — has changed the growth prospects for 2017-18, leading to a serious debate about the current health of the economy.

There are two major strands in this debate. This first one says that transformational reforms do lead to shortterm disruption in the economy. But the economy is on the right track and the benefit of reforms will be visible soon. The second one believes that instead of addressing the issues plaguing the economy, GoI has taken recourse to policy adventurism. So where does the truth lie? Probably somewhere in between.

On demonetisation and its timing, Prime Minister Narendra Modi said in Parliament that the “best time to perform surgery is when the body is healthy”. Again, without going into the question whether the economy was healthy enough for carrying out an exercise like demonetisation or not, it may suffice to say that irrespective of whether the body is healthy or not, surgery always requires serious preparation and care both before and after the procedure.

Ditto for GST. Was it done? Therefore, it is not a surprise that the GDP growth outlook for 2017-18 is getting revised downwards.